As I said, we broadly welcome the changes to the consortium conditions in the Corporation Tax Act 2010 through the relaxation of the definition of a link company so that it includes companies established in the EEA. As the Minister has explained, that currently applies only to linked companies that are established in the UK, so I have tabled a number of probing amendments with regard to the detail.

I am particularly querying why the Government decided to limit the extension to companies established in the EEA, rather than to worldwide link companies. Is there a specific policy reason why the restriction applies to companies established in the EEA? Is it because there would be an unacceptable cost if it were extended on a worldwide basis? Is restricting it to companies established in the EEA consistent with EU law? It has been suggested to us that the issue might give rise to legal challenges.

On the policy side, it has been said that the proposed Amendment to the consortium claim rules is inconsistent with the rules relating to group relief that permit the tracing of groups throughout worldwide companies. Under the changes introduced in the Finance Act 2000, following the ICI v Colmer decision, the Government took the approach of allowing group relief eligibility to be traced through non-resident companies, whether based in the EEA or outside it. That was seen generally by the corporate world as a helpful development. Against that background, it is surprising that, in the much less common situation of consortium claims made via link companies, a more narrow approach has been adopted. Will the Minister explain why the Government have decided to go down that path?

We suggest that the limited relaxation of the rules to EEA companies only complicates the group relief rules overall and possibly provides a trap for the unwary. If there is no or a minimal cost to doing so, I should be grateful if the Minister explained what the predicted costs are likely to be and said whether there was a financial reason for imposing the limitation. If no cost is involved, we recommend that the relaxation should be extended to worldwide link companies.

More importantly, we believe that the provision could be in breach of EU law. I accept that it is always difficult to follow oral examples of companies when discussing complex arrangements, but let us take a situation in which a UK company owns 100% of a US company,  which owns 100% of an EU company, which owns 50% of a UK trading company and assume that the other conditions for a consortium claim, with the UK company being the claimant and the UK trading company being the surrenderer, are satisfied. As it stands under section 133(6), a consortium claim would be denied. It has been suggested that that is clearly discriminatory against the EU company because it treats an investment by the EU company in the consortium less favourably than if the EU company had been resident in the UK. As such, that is a clear breach of the freedom of establishment of that EU company.

Will the Minister say whether legal advice has been taken on that point and whether he is satisfied that the issue could not be subject to legal challenge? Will he also answer my earlier question about whether there is a public policy reason or financial reason for establishing the limitation?